Sunday, December 03, 2006

Welcome to the slowest time of year for real estate. Inventory is dropping rapidly in the four-county Sacramento region:

I revised the end-of-the-year projection downward to ~13,500, due to the increased fall-off today. Note that this is the usual inventory pattern for this time of year, as all the 90 listings that began in October expire and are removed automatically from the MLS database. If 2007 is anything like 2006, we should see a 33% increase in inventory between January and March.

6 comments
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Sippin, where have you been? Don't we have a bet on the sales trends in the spring? A Heineken, was it? I bet prices continue to drop.

We have just experienced the most overwhelming bubble price run up in the history of housing. It is a national bubble at that and the economy is slowing substantially. The costs of building are dropping, the dollar is facing devaluation pressures, we are 50% above the historical "affordability index". Hmmm, and what am I missing....oh yes, we have a huge unsold inventory of vacant homes own by investors and dramatically rising foreclosure rates.

Now what answer were you waiting for....oh yes, is the housing market going to recover in the spring of 2007? Hmm, if it recovers, that would make it the absolutely shortest correction in the history of housing market corrections.

I don't expect prices to recover, expect resale to drop that 10% many experts predicting...delayed response as new home sales are taking the cake right now.

But I do expect volume to pick up in January.

Haven't seen construction costs drop significantly. Will send data when have time.

Read bubble buster, can't find anything credible - can you back up your stuff with facts? Looks like a lot of ranting, not backed up like much of the stuff on this blog. DO you really think prices will drop annually forever?

Well, sippn, the "there is no bubble" brigade used to think prices would rise annually forever... then they thought prices would level out... then they thought prices wouldn't drop more than maybe 4%... now they're hoping that the bottom has already been reached.

What we're seeing now are the flippers and specuvestors who tried to get out ahead of the bursting bubble and didn't make it. The impact of over-use of 100% financing, I/O loans, and ARMs has barely begun to be felt.

The bottom will be no sooner than early 2008, and it'll take a Sacramento-area house that was $400,000 in 2005 down to around $230,000 in real dollars (so with inflation, the nominal price in 2008 will be a little higher than that, probably closer to $250,000).

That doesn't mean there won't be plateaus... but this bubble has been so well-publicized that potential buyers know to wait. Who's going to buy in January? Only three types of people:

(a) Those who think the bottom is already in sight (haven't looked at CPI, mortgage data, or precedent of the 1990s).

(b) Those who have such a compelling lifestyle reason to buy rather than rent that losing equity just doesn't matter much to them (but they're buying new houses at steep discounts!).

(c) Total fools. Though the extent of the bubble suggests there are a lot of those, I wouldn't count on them to push prices or volume back up, if only because they're already out of investment money.

Housing is not strictly supply and demand. There is a floor determined by replacement cost (new housing stock). Citizens keep tweeking the demand side with a recreational pastime that causes children.

Some people don't want to be told what to do by their landlords or they are landlords.

If you have to pay rent, and you can invest your down payment instead of use it as a down payment, it would still be better to buy if housing appreciates only a total of 15% over 10 years - the numbers are a wash.